Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Meaning of trade: mutual trading and members clubs: members' clubs: community associations

Community associations provide recreational or similar facilities to local communities in the interests of social welfare. Many of these associations began as village halls and over the years the refreshment facilities provided have grown into permanent licensed bars. They normally have a constitution that enables them to be considered as charities under the Charities Act 2011.

A community association with charitable objects is not a members’ club. The sale of refreshments constitutes a trade. Profits arising from such a trade are not exempt from tax on the basis of mutual trading. Nor are they profits of a kind which can be exempt in the hands of a charity (see S478, S479 Corporation Tax Act 2010 (CTA 2010) for Corporation Tax, S524, S525 Income Tax Act 2007 for Income Tax).

However, you can accept that no liability to tax arises under an arrangement where the bar operation is carried on by a subsidiary company. This company can then transfer its profits to the community association by Gift Aid. The company may then claim a deduction under S189 CTA 2010 (qualifying charitable donations deducted from total profits). There is guidance concerning the conditions to be satisfied at CTM40065.

Advice along these lines has been published by the representative body, Community Matters. Where this advice is not followed, associations may have earned profits that are chargeable to tax. Where any community association has fully disclosed its circumstances in the past, and it has been agreed the profits were not taxable, the question should not be reopened for past years.

You should also refer to BIM24795.